"We have therefore never ruled out the possibility of future gold purchases," he said.

The SNB owns 1,040 tons of gold. More than 70 percent are held in Switzerland, with about 20 percent at the Bank of England and 10 percent at the Bank of Canada, he said, for the first time disclosing where the physical assets were stored.

Germany's Bundesbank in January announced plans to repatriate 674 metric tons of gold from vaults in Paris and New York by 2020. As a result, 50 percent of the German central bank's gold will be stored in its home city of Frankfurt by the end of the decade.

... Dispatch continues below ...

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Get the real story about the precious metals
from the Sprott Precious Metals Round Table

Now you don't have to travel to attend a financial conference to hear Sprott Asset Management's precious metals experts -- Eric Sprott, Rick Rule, and John Embry. They held a round-table discussion on February 12 and you can watch it on the Internet. Among their topics:

-- Why are precious metals such a compelling investment opportunity?

-- Why are non-G7 central banks buying gold? Do Western central banks have any left?

-- Why are investors buying as much silver as gold in dollar terms? What does this mean for the price of silver?

-- Is the growing supply deficit of platinum and palladium going to push their prices higher?

The SNB's gold holdings are the target of a popular initiative, which demands that at least 20 percent of the central bank's assets be in the form of gold. The measure would also block the sale of such holdings and require all SNB gold to be located in Switzerland.

In his speech at the central bank's annual general meeting in the Swiss capital, Jordan said the initiative, were it to go through, would be counterproductive.

"These measures would, in certain situations, considerably hinder the SNB in fulfilling its monetary policy mandate and be detrimental to Switzerland," he said.

The SNB's mandate is to maintain price stability, which it defines as positive inflation below 2 percent.

The Swiss People's Party, the SVP, members of which started the initiative after failing to get backing for the issues in parliament, submitted 106,052 valid signatures for the referendum, the Federal Chancellery said on April 18. Still, the actual popular vote may be years away, according to the chancellery.

The SNB's balance sheet has expanded significantly since it set a cap of 1.20 per euro on the franc in September 2011. The SNB held foreign-exchange reserves totaling a record 438.3 billion francs ($470 billion) at the end of last month, a sum equal to nearly three quarters of the country's annual economic output.

Were the initiative to be accepted, the SNB would have to make "large-scale gold purchases" to meet the required 20 percent threshold, Jordan said. Later on it wouldn't be able sell gold, even if it had to reduce its balance sheet again to maintain price stability, he said.

The restrictions on gold holdings could also reduce the interest income the SNB receives by holding stocks and bonds, he said, adding that in turn that could reduce the annual payout it makes to the government and the 26 cantons, which are its biggest shareholders.

The SNB's "capacity to act in monetary policy matters must not be compromised by rigid rules on the composition of its balance sheet," he said.
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